Eliza Wong
Xiaomi’s Electric Vehicle Business Approaches Critical Inflection Point
Xiaomi Corporation’s ambitious electric vehicle venture is rapidly approaching a watershed moment. According to the company’s Q2 2025 financial results released on August 19th, the technology giant’s automotive division has dramatically narrowed its operating losses while achieving record delivery numbers. Xiaomi Group President Lu Weibing (卢伟冰) has confidently projected that the electric vehicle business will achieve quarterly profitability during the second half of 2025, marking a remarkable turnaround for a division that was losing approximately $6,300 on every vehicle sold just last year.
The financial metrics reveal a compelling story of scaling efficiency. Xiaomi’s smart electric vehicle and AI innovation business segment generated RMB 21.3 billion ($2.93 billion) in revenue during the quarter, representing a staggering 234% year-over-year increase. More importantly, the segment’s operating losses narrowed dramatically to just RMB 300 million ($41.3 million), down from massive losses in previous periods.
Financial Transformation: From Deep Losses to Breakeven Horizon
The journey to potential profitability represents one of the most dramatic financial turnarounds in the automotive industry. Throughout 2022 to the first half of 2025, Xiaomi invested over RMB 30 billion ($4.13 billion) into its automotive and innovation businesses, creating significant cumulative losses. However, the most recent quarter demonstrates how scaling production and deliveries can fundamentally alter unit economics.
Quarterly Performance Breakthrough
Xiaomi’s electric vehicle division achieved several critical milestones in Q2 2025. The segment gross margin reached 26.4%, a substantial improvement from the 18.5% margin recorded throughout 2024. This 790 basis point improvement reflects both manufacturing efficiencies and better pricing power as consumer demand for Xiaomi’s models increases.
The revenue composition reveals where the business is finding its footing. Smart electric vehicles generated RMB 20.6 billion ($2.84 billion) of the segment’s total revenue, while adjacent businesses contributed RMB 600 million ($82.6 million). This product-focused revenue stream demonstrates that the core automotive business is driving the financial improvement rather than supplemental services.
The Path From Per-Vehicle Losses to Profitability
The most telling metric from Xiaomi’s automotive journey is the evolution of per-vehicle economics. In 2024, the company delivered 136,854 vehicles while recording a net loss of RMB 6.2 billion ($853 million) for its innovation business, which translates to a loss of approximately RMB 45,300 ($6,235) per vehicle sold.
The dramatic reduction in per-vehicle losses stems from multiple factors. As production volumes increase, fixed costs such as research and development, tooling, and factory overhead are spread across more units. Additionally, supply chain negotiations typically become more favorable as volumes increase, providing better component pricing. Manufacturing efficiencies also naturally improve as workers gain experience with production processes.
Delivery Momentum Builds Toward Annual Target
Xiaomi’s second quarter delivery numbers provide the foundation for its improving financial performance. The company delivered 81,302 vehicles during the quarter, setting a new record and putting the company on track to achieve its full-year target of 350,000 deliveries. This scaling of production is the primary driver behind the improved financial metrics.
Model Expansion Drives Volume Growth
The expanding model lineup has been instrumental in driving delivery growth. The Xiaomi SU7 sedan, which launched as the company’s first electric vehicle, has been joined by the SU7 Ultra performance variant and the YU7 model, which appears to be a more affordable offering aimed at volume segments. This product expansion allows Xiaomi to address multiple price points and consumer preferences, thereby expanding its market reach.
Industry analysts note that new energy vehicle adoption in China continues to accelerate, with electric vehicles accounting for approximately 40% of new car sales in the world’s largest automotive market. This tailwind has certainly benefited Xiaomi’s rapid scaling, though the company has also demonstrated remarkable execution in bringing competitive products to market despite being a relative newcomer to automotive manufacturing.
The Road to Profitability: How Xiaomi Is Engineering Financial Sustainability
Reaching quarterly profitability requires more than just increasing delivery volumes. Xiaomi has implemented a multi-faceted strategy that addresses both revenue enhancement and cost management across its automotive operations.
Manufacturing Efficiency Gains
As production volumes increase, manufacturing efficiency naturally improves through what industry experts call the ‘learning curve’ effect. Workers become more proficient with assembly processes, quality issues are identified and resolved, and supply chain logistics are optimized. These improvements directly impact the cost per vehicle, gradually reducing the loss on each unit sold until the business reaches breakeven and eventually generates profit.
Xiaomi’s existing expertise in consumer electronics manufacturing has likely accelerated this learning process. The company has applied its experience with high-volume precision manufacturing to automotive production, potentially shortening the typical timeline for achieving manufacturing efficiency.
Research and Development Efficiency
Substantial research and development investments characterize the early years of any automotive venture. Xiaomi acknowledges investing over RMB 30 billion ($4.13 billion) in its innovation businesses between 2022 and the first half of 2025. While this created significant losses initially, these investments are now being amortized across a growing number of vehicles.
The company’s approach to R&D appears focused on creating scalable electric vehicle platforms that can support multiple models with shared components and architectures. This strategy maximizes the return on investment for development costs by spreading them across higher production volumes.
Market Context: Xiaomi’s Position in China’s EV Landscape
Xiaomi enters an increasingly crowded electric vehicle market in China, where competition has intensified dramatically in recent years. The company faces established domestic players like BYD, NIO, Li Auto, and XPeng, alongside technology companies like Huawei that have partnered with traditional automakers to produce electric vehicles.
Differentiation Through Technology Integration
Xiaomi’s unique positioning stems from its integration of consumer electronics and smart device expertise into the automotive experience. The company emphasizes its AI capabilities and connected ecosystem, allowing seamless integration between Xiaomi phones, smart home devices, and vehicles. This technology-focused differentiation may help the company compete despite entering the market later than many competitors.
The company’s existing retail presence and brand recognition in China provide additional advantages. With hundreds of Mi Home stores across the country, Xiaomi has established channels for vehicle display and customer interaction that would be difficult for startups to replicate quickly.
Competitive Pricing Strategy
Xiaomi has historically competed in consumer electronics through aggressive pricing that delivers strong value proposition to customers. This approach appears to be translating to its automotive business, with the company offering feature-rich vehicles at competitive price points. This strategy supports volume growth, which in turn drives the economies of scale necessary for profitability.
Implications of Achieving Profitability
If Xiaomi achieves its goal of quarterly profitability in the second half of 2025, it would represent a significant milestone not just for the company but for the electric vehicle industry broadly. Few electric vehicle startups have reached profitability, particularly in such a competitive market as China.
Industry Validation
Successful profitability would validate Xiaomi’s approach to electric vehicle development and manufacturing. It would demonstrate that technology companies can successfully enter the capital-intensive automotive industry and achieve financial sustainability within a reasonable timeframe. This could encourage other technology firms to consider automotive ventures, potentially accelerating innovation in the sector.
Investment in Future Growth
Reaching profitability would provide Xiaomi with greater flexibility to invest in future model development, market expansion, and technology innovation. Rather than relying solely on parent company funding or external capital raises, a self-sustaining automotive division could fund its own growth initiatives, creating a virtuous cycle of investment and expansion.
The company has indicated ambitions to expand beyond the Chinese market, though specific timelines for international expansion have not been announced. Achieving profitability in its home market would provide a stronger foundation for global growth when the company decides to pursue it.
The Future of Xiaomi’s Automotive Business
As Xiaomi approaches its profitability target, attention turns to what comes next. President Lu Weibing’s comments suggest confidence not just in achieving quarterly profitability but in continuing the positive trajectory toward full-year profitability and beyond.
Sustaining Momentum
The critical challenge after achieving initial profitability will be sustaining and building upon that success. The automotive industry is cyclical, and competitive pressures in the electric vehicle segment continue to intensify. Xiaomi will need to continue innovating, optimizing costs, and expanding its product lineup to maintain momentum.
The company’s technology background may provide advantages in areas like autonomous driving, connectivity, and user interface design—all increasingly important differentiators in the electric vehicle market. Leveraging these strengths while maintaining focus on manufacturing excellence and cost management will be essential for long-term success.
Broader Impact on Xiaomi’s Business
The successful development of a profitable automotive business could transform Xiaomi’s overall corporate profile. While known primarily as a smartphone and consumer electronics company, a successful automotive division could eventually represent a significant portion of revenue and profits.
This diversification also provides strategic benefits, reducing reliance on the highly competitive smartphone market while positioning the company at the intersection of several technological trends: electrification, autonomy, and connectivity.
Xiaomi’s Electric Vehicle Division Nears Its Financial Turning Point
Xiaomi’s journey from losing over $6,000 per vehicle to projecting quarterly profitability within a year demonstrates how rapidly electric vehicle economics can transform at scale. The company’s impressive Q2 2025 results—81,302 deliveries, 26.4% gross margin, and sharply reduced operating losses of $41 million—paint a picture of a business hitting its stride at a pivotal moment in electric vehicle adoption.
President Lu Weibing’s projection of profitability in the second half of 2025 appears well-founded based on the current trajectory. As delivery volumes continue to increase toward the 350,000 unit annual target, fixed costs are spread across more vehicles, manufacturing efficiency improves, and the company benefits from its substantial upfront investments in development and production infrastructure.
The potential achievement of profitability would represent a significant milestone not just for Xiaomi but for the electric vehicle industry broadly, demonstrating that well-executed market entries can reach financial sustainability despite intense competition. For investors, industry observers, and electric vehicle enthusiasts, Xiaomi’s progress toward profitability warrants close attention as a bellwether for the industry’s evolution.
For those tracking the electric vehicle market’s development, Xiaomi’s quarterly financial reports have become must-read documents that reveal both the company’s specific progress and broader industry trends. The next few quarters will determine whether Xiaomi can complete its journey from ambitious startup to profitable automotive manufacturer, potentially reshaping competitive dynamics in the world’s largest electric vehicle market.
